Shares of Netflix (NFLX) are trading lower in morning trading after the streaming service reporting quarterly results last night, with fourth quarter revenue missing Wall Street estimates. In addition, the company provided lower-than-expected guidance for the first quarter. Despite the revenue miss, multiple analysts maintained Buy-equivalent ratings on the stock and even raised their price targets, with some highlighting strong international subscriber additions. While certain analysts kept Neutral- or Sell-equivalent ratings, some raised their price targets on the shares anyway.
GOLDMAN BACKS BUY: In a research note to investors, Goldman Sachs analyst Heath Terry maintained a Buy rating on Netflix and raised his price target to $450 from $420, saying that Q4 subscriber results exceeded consensus expectations. The analyst said that the quarter's "strong" content slate, distribution partnerships, and outsized market drove 11.4M net additions globally, which was 3M higher than the record Q4 of 2017. Terry noted that as Netflix subscriber adds continue to exceed expectations and it approaches an inflection point in cash, he believes the shares will continue to "significantly outperform."
Meanwhile, Morgan Stanley analyst Benjamin Swinburne released a note with a similar sentiment, saying that Netflix's Q4 results along with its "confident" paid net additions guidance for Q1 despite a 13%-18% price increase in the U.S. and parts of Latin America gives him further confidence that the company's competitive moat is widening. The analyst backed an Overweight rating on the stock and raised his price target on the shares to $450 from $430.
In addition, Stifel analyst Scott Devitt also maintained a Buy rating on Netflix and raised his price target to $400 from $380, saying that the company should experience revenue reacceleration to greater than 30% growth along with operating margin expansion in 2019.
KEYBANC SAYS Q4 'LARGELY AS EXPECTED': Following the earnings report, KeyBanc analyst Andy Hargreaves maintained a Sector Weight rating on Netflix with a fair value of $350, saying that the Q4 results were "largely as expected." The analyst said that Netflix maintains a "favorable" strategic position in a growing market and is driving "impressive" results globally, though he sees minimal upside to near-term estimates unless investment efficiency improves, of which he sees little evidence.
Meanwhile, Nomura Instinet analyst Mark Kelley kept a Neutral rating on Netflix but raised his price target to $320 from $300, saying that Q4 results were "clean" and that the 2019 outlook remains "largely unchanged." The analyst said that net adds were roughly in line domestically and that management's comments on cash burn was consistent with prior commentary, indicating that investment in content is still "top of mind."
Needham analyst Laura Martin, however, maintained a Hold rating on the stock, saying that this could be the "beginning of the end or the end of the beginning" for Netflix. The analyst said that Netflix losing most of its Disney (DIS) content coupled with its meaningful price increase in the U.S. lowers the price/value ratio. In addition, Martin noted that she expects new entrants in the OTT space to target Netflix's users directly because it is cheaper than converting a new household to OTT.
WEDBUSH BACKS UNDERPERFORM: On the other side, Wedbush analyst Michael Pachter kept an Underperform rating on Netflix but raised his price target to $165 from $150 after the company "once again" delivered solid subscriber growth numbers and EPS upside. Pachter noted that he anticipates content spending to trigger "substantial" cash burn for many years, but added that consistently negative free cash flow makes DCF valuation "impossible."
PRICE ACTION: In late morning trading, Netflix shares are down nearly 3% to $342.92.
Netflix
-8.44 (-2.39%)
Disney
+0.4 (+0.36%)